Commercial real estate market investors looking for signs that the local office market is nearing a bottom will be eyeing an expected sale of two Santa Ana office towers.
Griffin Towers, a pair of 14-story buildings at the intersection of the San Diego (I-405) and Costa Mesa (55) freeways, are said to be on the market and could be nearing a sale, according to local investment brokers.
The building’s likely the most prominent local office on the market right now, according to Kevin Shannon, vice chairman in the institutional investment group of Los Angeles-based CB Richard Ellis Group Inc.
Unlike other recent office sales, Griffin Towers isn’t exactly distressed. Current owner Los Angeles-based Maguire Properties Inc. said last year it planned to turn over six Orange County office buildings, but Griffin Towers wasn’t among them.
Still, a sale of the offices had been expected by Maguire, in part because of its heavy debt due for the buildings in the next few years.
A potential buyer hasn’t been disclosed. A time frame for when a deal for the buildings—housing the headquarters of vocational schools operator Corinthian Colleges Inc., among other businesses—still is unclear.
The deal could prove to be a bellwether for the local office market, which despite a handful of larger sales in late 2009 saw slow going for the second straight year.
At the peak of the market, the two buildings could have commanded a sales price close to $200 million. Now, the buildings appear likely to trade for about $75 million—or about $135 per square foot—if recent sales prove to be the new norm.
Lower prices are a key reason for the dearth of deals in the past year, according to some of the region’s top investment brokers.
In one of the few sales last year, a nearby tower—the 246,819-square-foot 3 Mac Arthur—was sold in October by New York-based Tishman Speyer Properties LP to El Segundo-based Highridge Partners for $31 million, or about $125 per square foot.
That deal ended up being one of the biggest discounts for a local office seen last year, since Tishman paid about $83 million, or about $336 per square foot, for the MacArthur Place office near the peak of the market, in mid-2007.
The 3 MacArthur building was about 75% full at the time of its sale. The new owners already have signed close to 50,000 square feet of leases at 3 MacArthur since the deal closed, thanks in part to aggressive rents and broker commissions, according to brokers.
Owners, lenders and servicers still are figuring out the best course of action for disposing of troubled assets and setting prices, according to Adam Edwards, managing director for brokerage Eastdil Secured.
For a majority of deals struck last year, “greed overcame fear,” Edwards said, as investors grabbed buildings for less than what it would cost to replace them.
While prices might continue to drop on a square foot basis for sales in 2010, capitalization rates—the expected initial return from rents—might begin to show some stabilization or improvement this year, said Jeff Cole, executive director at the Irvine office of Cushman & Wakefield Inc.
Griffin Towers lists monthly lease rates at about $2.25 per square foot.
The buildings were put on the market once before, in late 2007, but a deal was never struck.
Maguire said in mid-2009 it was required to pay a $10 million debt payment for Griffin Towers last June, as well as another $10 million payment due this year and a $15 million payment in 2011.
The two buildings are about 77% full with 39 tenants. Those leases bring in about $6.5 million in annual rents, according to Maguire’s most recent financial statements.
